ON Semiconductor And Globalfoundries Both Win With Its $430M Fab 10 Deal

By Patrick Moorhead - May 15, 2019
Fab 10 in East Fishkill, NY

Last month, ON Semiconductor and Globalfoundries announced a $430 million agreement to transfer ownership of Globalfoundries 300mm Fab 10 in East Fishkill, New York, to ON Semiconductor. While the deal is still pending regulatory approval and closing conditions, I wanted to give my quick take on the news.

The deal

The transition of ownership of the East Fishkill “Fab 10” is expected to happen over the next several years. The deal was sealed with a $100 million initial payment to GF, with full operational control expected to be given to ON Semi at the end of 2022 when the final payment of $330 million is made. 

This deal comes with the benefit of a technology transfer and development agreement between the two companies—GF’s highly experienced 300mm team will aid in the conversion of ON Semiconductor’s wafer processes from 200mm to 300mm, with ON Semiconductor expected to begin production of its own 300mm wafers in 2020. GF says it will continue to manufacture 300mm wafers at Fab 10 for ON Semi until 2022, when the final payment is made. At that time, the site’s employees will transition to employment with ON Semi. The companies say that none of the approximately 1,300 jobs will be lost as a part of this deal, and additionally, ON Semi says it will add approximately 150 more well-paying jobs to the region.

I think this deal makes a lot of sense for both parties involved. The semiconductor market is rapidly changing, a proof point that this announcement illustrates. The trillions of IoT and mobile devices deployed in the next five years don’t necessarily need a leading-edge node, but rather special features and lower power for the specific application.

What’s in it for Globalfoundries

Globalfoundries has been refocusing its strategy to growth markets of radio frequency (RF), FinFET (for chips with higher performance requirements), FDX (a lower power platform), and power solutions. This pivot was evident at last October’s GTC 2018 conference (see my take here). Upon completion of the deal, GF will transition its many technologies to its three other 300mm fabs. Overall, GF says the agreement will enable it to optimize its asset base and rationalize its global manufacturing footprint. I will be writing a longer analysis later about all the moves GF has made recently and what they mean it totality.

What’s in it for ON Semiconductor

Unknown to many, ON Semi is an IDM (integrated device manufacturer) like Intel, in that they own most of their own manufacturing facilities, twelve wafer fabs and nine assembly and test sites employing around 28,000 workers, to be specific. The company ships over 35 billion chips… every six months.

Given its growing business, ON Semi needs more leading-edge capabilities and increased wafer capacity to support applications like automotive electrification, 5G mobile networks, cloud computing, and alternative energy. Automotive electrification, in particular, is becoming a major part of ON Semi’s business (see my coverage here and here). In addition to gaining 300mm wafer production capabilities, this deal will offer ON Semi access to more advanced CMOS capability (such as 45nm and 65nm nodes). 

The acquisition of this technology and the East Fishkill facility should help ON Semi grow in the strategic areas that drive its business—namely power and analog products. Fab 10 currently has capacity for 20,000 12-inch, 300mm, wafers per month and currently operates on 90-22nm nodes. 

Texas Instruments and its customers should be paying close attention to this announcement as ON’s announcement poses a major threat. On Semiconductor already has many fabs but make it outlook even better.

Wrapping up

All in all, it looks like a smart deal for both companies. It should allow GF to execute on its focused strategy, streamline and consolidate its assets and manufacturing footprint, and the acquisition of 300mm and CMOS technology will help ON Semi grow in automotive electrification, 5G, cloud computing, and more. The long transition period works for both parties, too, as ON needs to transition certain devices from 200mm to 300mm and for Globalfoundries, it provides time to transition customers to its three remaining 300mm fabs. I’ll continue to watch with interest.

Note: Moor Insights & Strategy writers and editors may have contributed to this article.  

Patrick Moorhead
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Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.